EV Parts and Components in Mexico

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Questions and Answers

What does a change in tariff classification (CTC) indicate?

The product's physical appearance has improved.

The product has undergone a cosmetic change.

The product has been rebranded under a new name.

The product's classification has altered due to processing in a country. (correct)

What is the 2-digit code in the Harmonized System known as?

Chapter (correct)

Section

Heading

Subheading

How many chapters are included in the Harmonized System?

21 (correct)

Which of the following correctly describes the coding system featured in the Harmonized System?

It allows for common classification up to the 6-digit level across countries. Signup and view all the answers

What does CTC require a product to modify in order to classify differently?

Its chapter, heading, or subheading in the HS code. Signup and view all the answers

What is the target set by the United Nations for global CO2 emissions reduction by 2030?

45% Signup and view all the answers

Which of the following is NOT a condition for a competitive export economy in the electric vehicle industry?

A large domestic market Signup and view all the answers

What significant milestone did Marcelo Ebrard state regarding domestic car sales by 2030?

50% of all domestic car sales will be EVs Signup and view all the answers

By what year does the European Union plan to ban the sale of internal combustion engines?

2035 Signup and view all the answers

Which of the following describes Mexico's position in the global auto industry?

Seventh largest manufacturer of automobiles Signup and view all the answers

What was the production number of electric automobiles in Mexico for the year 2023?

142,000 Signup and view all the answers

Which of the following is a key factor for Mexico to attract nearshoring activities?

Geographical location Signup and view all the answers

What constitutes a business-friendly environment critical for EV manufacturing in Mexico?

Low labor costs and social stability Signup and view all the answers

What is the primary objective of President Andrés Manuel López Obrador regarding the energy sector?

To establish state dominance Signup and view all the answers

Under the USMCA, what must most goods containing materials from non-USMCA countries do to be considered North American?

Undergo a tariff change Signup and view all the answers

What is the minimum regional value content required under the transaction value method for most goods in the USMCA?

60% Signup and view all the answers

Which of the following is a new requirement for the automotive industry under the USMCA?

75% of U.S. content is required for vehicles Signup and view all the answers

How does the net cost method for calculating regional content differ from the transaction value method?

It factors in royalties and sales promotion costs Signup and view all the answers

What percentage of North American automotive content must be performed by workers earning at least $16 per hour under the USMCA?

40% to 45% Signup and view all the answers

What was the North American content requirement for vehicles under NAFTA?

62.5% Signup and view all the answers

What specific requirement does the USMCA impose regarding the origin of steel and aluminum in vehicles?

70% must be melted and dumped in North America Signup and view all the answers

Which sector in Mexico will experience the highest growth in plants making parts for electric vehicles?

Electric drivetrain Signup and view all the answers

What has been identified as a barrier for the general population in Mexico to purchase electric vehicles?

High prices and lack of governmental incentives Signup and view all the answers

What is the main factor contributing to the slow transition from internal combustion engines (ICEs) to electric vehicles (EVs) in Mexico?

The economy's reliance on fossil fuels Signup and view all the answers

Which of the following is NOT mentioned as a requirement for higher value manufacturing in the EV supply chain?

Marketing specialists Signup and view all the answers

Which Mexican state is NOT mentioned as having a concentration of plants making EV parts?

Zacatecas Signup and view all the answers

What is the projected growth rate for fuel cell systems in the EV sector in terms of the number of plants?

100% Signup and view all the answers

What is considered an asset for developing the supply chain for EVs in Mexico?

Interdependence among automotive, electronics, and telecommunications industries Signup and view all the answers

Which technology is necessary for continued manufacturing and usage of EVs in Mexico, as mentioned for investment needs?

5G technologies Signup and view all the answers

What is required for light and heavy-duty trucks to originate under the USMCA?

45 percent of the value must meet high-wage expenses. Signup and view all the answers

Which of the following expenses contributes to the Labor Value Content points system?

High-wage manufacturing expenses Signup and view all the answers

What is the base wage requirement for workers performing direct production work at a North American assembly plant?

USD 16 per hour Signup and view all the answers

What type of spending does the high-wage technology expenditure provision allow producers to claim credits for?

Research and development expenditures Signup and view all the answers

Which of the following is NOT included in the wage calculation for direct production work?

Bonuses Signup and view all the answers

How many percentage points of high-wage manufacturing and materials expenditures are required for light and heavy-duty trucks?

30 percentage points Signup and view all the answers

Which high-wage category can contribute no more than ten percentage points towards Labor Value Content?

High-wage technology expenditures Signup and view all the answers

What is the role of producers and workers in relation to Labor Value Content and the USMCA?

They are incentivized for investments in new vehicles and parts in the US. Signup and view all the answers

What is the formula for calculating Regional Value Content (RVC) using the Transaction Value Method?

RVC = (TV - VNM) / TV x 100 Signup and view all the answers

As of July 1, 2021, what is the required RVC percentage for passenger vehicles and light trucks using the net cost method?

69 percent Signup and view all the answers

What will the RVC requirement for heavy duty trucks be on or after July 1, 2027?

70 percent Signup and view all the answers

What is the minimum hourly wage that workers must be compensated with for vehicles to count towards the New Labor Content Rule?

$16 per hour Signup and view all the answers

Using the Net Cost Method, how is RVC calculated?

RVC = (NC - VNM) / NC x 100 Signup and view all the answers

What is the RVC requirement for passenger vehicles and light trucks as of July 1, 2023?

75 percent Signup and view all the answers

Which method indicates values adjusted to exclude international shipment costs?

Transaction Value Method Signup and view all the answers

What is the required RVC percentage for heavy duty trucks by July 1, 2024?

64 percent Signup and view all the answers

Study Notes

EV Parts and Components Industry in Mexico

Mexico is the 7th largest manufacturer of automobiles and the 4th largest exporter of auto parts globally
Mexico is now China's second largest export market for automobiles
Mexico's location is advantageous for nearshoring activities
Mexico's proximity to the US market is key, where government incentives encourage electric car adoption.
The presentation discusses potential positive changes and incentives
Potential future changes in the US government and leadership are highlighted

Goals for reducing CO2 emissions
Conditions for optimal foreign direct investment (FDI) inflows in the auto parts industry for electric vehicles
Mexican electric vehicle industry (brands, production, market size)
Mexican electric vehicle components/parts industry (production by segment, region)
Current trends in the Mexican EV components and auto parts industry
Potential of Mexico as a market for electric vehicles
USMCA rules of origin relevant to components and auto parts (tariffs, regional value, labor content)

Emissions Reductions Goals

The UN aims to reduce global CO2 emissions by 45% by 2030
Marcelo Ebrard, Mexican Chancellor, stated that 50% of all domestic car sales will be EVs by 2030
The EU bans the sale of internal combustion engines by 2035
China aims for net-zero emissions by 2060

Conditions for a Competitive Export Economy

A major EV automobile exporter needs a strong industrial infrastructure and production capacity
A domestic market that isn't overly large to avoid overwhelming production capacity
Access to export markets through Free Trade Agreements (FTAs)
A strong supporting industry in the domestic economy , including local component suppliers, and established supply chains
A business-friendly environment with low labor costs, and social, economic, and political stability

Sales and Production of EVs in Mexico (2019-2022)

A total of 192,422 electric automobiles were produced in Mexico between 2020-2023
The presentation provides detailed sales and production data for different types of vehicles (BEV, PHEV, HEV) from 2019-2023
Electric vehicle sales and production in Mexico have increased substantially in recent years

Growth in EV Sales in Latin America and the Caribbean

The presentation shows various countries' growth trends in sales for electric and hybrid vehicles using data for 2022
The graphic depicts the different types and quantities of vehicles sold in various countries

OEM/ Assembly for EV Vehicles in Mexico

The presentation shows 6 major manufacturers of electric and hybrid vehicles in Mexico
It states the location and production quantities for each manufacturer in Mexico

More EV Production Projects in Mexico

Stellantis started producing electric vehicles in August 2024
Zacua Mexico is a Mexican electric car brand that prioritizes handmade assembly
W Tech produces tactical vehicles and electric buses
International Navistar produces the eMV, a 100% electric truck
MoldEX manufactures electric utility vehicles
Questum will start producing electric vehicles, and is partnered with FEMSA
Tesla is expected to have a production facility in Mexico
LINK Electric Vehicles are projecting electric truck production in Puebla
OLINA aims to produce 100% domestically designed and sourced EVs

Auto Part Segments

There are 3 main auto part product segments: Electric components & parts, ICE-related components, and Core Vehicle Components
The ICE component segment is declining
Core Vehicle Component segment levels are stable
Electric parts and components are expected to show strong growth

Mexico and EV Autoparts Industry

Mexico is seeing a relocation of EV auto parts manufacturing plants from multiple countries
$15 billion in investment in EV parts/components is projected in the next few years in Mexico
Guanajuato, Coahuila, Queretaro, Nuevo Leon, Chihuahua, San Luis Potosi and Estado de Mexico have the highest concentration of vehicles and plants for making auto parts for electric vehicles
Established ICE autoparts companies are making the transition to EV autoparts

Tier 1, 2 Electromobility and Electrification Components

Batteries/Capacitors and associated components are increasing
Electric Drivetrains are growing
Fuel Cell Systems are increasing
Cooling and thermal management systems for EVs are increasing
Power control units (PCU) are increasing
Other suppliers of components have a high growth rate in the market

Developing the Supply Chain for EVs in Mexico

There is increasing interdependence between automotive, electronics and telecommunications industries in Mexico
The market is becoming more suited for hybrid EVs than battery EVs
Increasing investment in digital infrastructure is necessary
Mexico must develop skilled labor and expertise in battery management systems, powertrain optimization, battery chemistry, electrical harnesses, and safety systems.

Mexico as a Potential Market for the EV Industry

Mexico is a growing consumer market suitable for early EV market positioning
EVs are currently considered a luxury good in Mexico due to a combination of high prices and limited governmental incentives
Low-cost EVs are growing in popularity in the cab-hailing sector
A national EV policy is needed in Mexico

Chapter 4 of USDA: Rules of Origin

Rules of origin in FTAs help prevent benefits from being granted to goods made outside of the agreement
Criteria based on materials, production, and regional content levels need to be met
Processes are needed for determining regional value content and regional value content calculations
Different Regional Value Content (RVC) calculation methods are outlined (transaction, net cost)

USMCA Rules of Origin for the Automotive Industry

Stricter regional content requirements for vehicles (more U.S. content)
Increased wage requirements for North American workers involved in the assembly or manufacturing of vehicles
Increased requirements that raw steel & aluminum be obtained within North America

Product-Specific: Substantial Transformation: Change in Tariff Classification (CTC)

Substantial transformation changes the unique identification code (e.g., parts vs. finished vehicle)
Some changes may require modifying the chapter, heading, subheading or period in the harmonized system.

What is a Tariff Classification?

The Harmonized System, or HS Code, is a global standard for classifying products
The system is organized into chapters, headings, subheadings, with different levels of product specificity.
The HS Code is universally used by governments to track imports and exports of goods.

Regional Content Methods (USMCA)

Two methods to calculate regional content value (RVC):
Transaction Value Method: Based on the price of the good
Net Cost Method: Based on the total cost of the good

Regional Value Content Requirements

The value of RVC requirements for passenger vehicles and light trucks vary depending on the year.
Requirements for heavy-duty trucks have variations that depend on the year.

New Labor Content Rule

Specific minimum percentage of North American content by value is required for vehicles
Workers must earn $16 per hour
Encourages US investments in vehicle manufacturing

Labor Value Content

The labor value content is a point system based on high-wage expenses
Manufacturing and material expenses are included
High-wage technology spending is also considered in the point system
High-wage assembly expenses are also included

Labor Value Content (Passenger Vehicles)

Detailed table showing the percentage of labor value content based on different periods and categories

Labor Value Content (Light Trucks and Heavy Duty Trucks)

Different requirements for light trucks and heavy duty trucks under USMCA.
A Labor Value Content percentage of at least 45% is required for the value of a vehicle produced

What Does This Mean?

Average hourly wage for production workers in North American facilities needs to be at least USD16/hour to be included for calculation of labor value content.
A significant portion of wages need to be in North America
High-wage tech component spending is also necessary.
High-wage assembly is also included

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Description

Explore the burgeoning electric vehicle (EV) parts and components industry in Mexico, the 7th largest car manufacturer and 4th largest auto parts exporter globally. This presentation covers the advantages of Mexico's location for nearshoring, the potential growth of the EV market, and insights into government incentives for electric car adoption. Delve into the trends and conditions shaping the future of Mexico's auto parts industry.